POVERTY AND

ASPIRATIONS FAILURE

BSI workshop

Patricio S. Dalton (Tilburg University, CAGE)

Sayantan Ghosal (University of Glasgow)

Anandi Mani (University of Warwick, CAGE)

Take home message

1. Appadurai 2004; Ray 2006: aspirations failures

2. This paper models aspirations failures, the failure to aspire to one’s own potential.

3. It is not a paper on aspirations gaps: aspirations > achievements (Ray, 2006; Genicot-Ray, 2011; Bogliacino-Ortoleva, 2011).

4. Poverty increases the likelihood that a person gets trapped in an aspirations failure.

5. Poverty is the cause of poor people’s lack of aspirations and failure to realize their full potential.

Poverty Traps: Two views

Persistent Poverty Due to External Constraints

Credit Market Imperfections, Poor Nutrition, Network effects,

Institutional Failures, Corruption, Beliefs Systems, Culture,…

Persistent Poverty due to Internal Constraints

myopia, lack of willpower, lack of aspirations often cited as traits

the poor likely suffer from.

Lack of Self-Control among the poor could lead to Poverty Trap

(Banjeree-Mullainathan, 2010; Bernheim-Ray-Yelteki, 2011)

60 % of Americans think that the poor "are lazy or lack

willpower" (World Values Survey, Alesina et al., 2001).

Evidence of Poverty & Aspirations

Poor adults have low aspirations:

low-income urban neighborhoods in America (MacLeod,

1995) and the UK (Cabinet Office, 2008)

Youths in Jamaica (Walker, 1997)

Rural Ethiopia (Frankerberger et al., 2007; Bernard et al.

2011)

Poor kids have high aspirations:

75% of the 14 year-old Ethiopians said that they want to

go to college. Only 3 % actually go.

Lack of aspirations – Cause or

Consequence of Poverty?

Is it that the poverty persists because the poor lack hope

and motivation to pull themselves out of poverty? OR…

Is it that `the poor may exhibit the same basic weaknesses

and biases as do people from other walks of life, except

that in poverty, ....the same behaviors ...lead to worse

outcomes’ ? (Bertrand et al., 2004)

Poverty can curtail the capacity to aspire.

(Appadurai, 2004)

What do we do? In a nutshell

James and Tom are born with the same innate:

Preferences

Abilities

Ambitions/Aspirations

Imperfections to make decisions (none is homo-economicus)

But…James is born poor and Tom rich.

James is more likely to aspire, achieve and put effort sub

optimally, i.e. below his potential.

Low aspirations may be a rational response of the poor,

but they may also be caused by the interaction between

poverty and a behavioral bias in setting aspirations.

Related papers

Ray (2006) provides an exposition of how socially

determined aspirations contribute to poverty

persistence.

Closely related papers on aspirations include

Bogliacino-Ortoleva (2011), Genicot-Ray (2011)

and Stark (2006).

Preferences

Benefit from final wealth

Benefit of reaching a specific level of

final wealth

Aspirations are reference points

reference-dependent value function

Cost of effort

Cost of effort

How Poverty Imposes External

Constraints

Final wealth is proportional to initial wealth and the factor of

proportionality is determined by effort.

What determines individual aspirations?

How do we model aspirations?

(effort, aspirations) choice: Normative

Benchmark

The value function is irrelevant in ranking

effort of a rational decision maker

(effort, aspirations) choice: Behavioral

Bias in setting aspirations

Characterizing the set of rational

solutions

Characterizing the set of behavioral

solutions

Internal Constraints and Aspirations

Failure

ASPIRATIONS FAILURE

How Poverty Exacerbates an

Aspirations Failure?

How Poverty Exacerbates an

Aspirations Failure?

Net benefit of putting effort Net benefit of doing nothing

Aspirations Threshold

Aspiration-Based Poverty Traps

ASPIRATIONS FAILURE: Low effort is sub-obtimal

Wealth-Based Poverty Traps

The conditions of poverty are so stringent, that aspirations don’t act

as a constraint. Low effort is optimal.

Policy Implications

Room for policies that shock internal constraints (such as aspirations), in addition to relaxing external constraints.

"failure to address the psychosocial determinants of human behavior is often the weakest link in social policy initiatives. Simply providing ready access to resources does not mean that people will

take advantage of them.” (Albert Bandura, 2009, The Psychologist)

Examples:

Changing Initial Aspirations (of Parents, for instance, like in SPOKE Program in UK).

Helping to internalize the path-way from aspirations, effort and achievement. (e.g. working with role models)

Conclusion

The American dream may be stifled in equilibrium….

In a context in which:

1. no initial innate differences in aspirations, ambitions, preferences and abilities between the poor and the rich.

2. everybody can “make it” (i.e. reach their aspirations)

Initial external constraints make more likely that the poor end up holding low aspirations and do not realize their full potential.

The 60 % of Americans who think that poor are poor because they are “lazy” are likely to be drawing biased inferences from an equilibrium outcome caused by poverty itself.

Thank you for your attention!